12.

Stock Compensation

Performance Food Group Company provides compensation benefits to employees and non-employee directors under several share based payment arrangements.

The Performance Food Group Company 2007 Management Option Plan (the “2007 Option Plan”)

The 2007 Option Plan allows for the granting of awards to current and future employees, officers, directors, consultants, and advisors of the Company or its affiliates in the form of nonqualified options. The 2007 Option Plan is designed to promote the long-term growth and profitability of the Company by providing employees and consultants who are or will be involved in the Company’s growth with an opportunity to acquire an ownership interest in the Company, thereby encouraging them to contribute to and participate in the success of the Company. The terms and conditions of awards granted under the 2007 Option Plan are determined by the Board of Directors. There are 6,445,982 shares of common stock reserved for issuances under the 2007 Option Plan. All current awards have a contractual term of ten years.

Each of the employee awards under the 2007 Option Plan is divided into three equal portions. Tranche I options are subject to time vesting. Tranche II and Tranche III options are subject to both time and performance vesting, including performance criteria based on the internal rate of return and sponsor cash inflows as outlined in the 2007 Option Plan. Prior to the amendment discussed below, the Company’s assessment of the performance criteria indicated that satisfaction of the performance criteria was not probable and therefore, no compensation expense had been recognized to date on Tranche II and Tranche III options.

The Tranche I compensation cost that has been charged against income for the Company’s 2007 Option Plan was $0.3 million for the quarter ended September 26, 2015 and $0.2 million for the quarter ended September 27, 2014 and is included within operating expenses in the consolidated statement of operations. These costs relate to the service condition component of the awards and are being recognized on a straight-line basis. The Company recorded no tax benefit nor incurred an impact on its cash flows related to compensation cost on share-based payment arrangements for the period. The total remaining unrecognized compensation cost for Tranche I was $4.6 million as of September 26, 2015.

The 2007 Option Plan has repurchase rights that generally allow the Company to repurchase shares, at the current fair value following a participant’s retirement or a participant’s termination of employment by the Company other than for “cause” and at the lower of the original exercise price or current fair value following any termination of employment by the Company for “cause,” resignation of the participant, or in the event a participant resigns due to retirement and subsequently breaches the non-competition or non-solicitation covenant within one year of such participant’s termination. Because of the existence of the repurchase rights, the weighted average service period has exceeded the contractual term of the options. However, the repurchase option feature of this plan terminated upon the date of an Initial Public Offering. As a result, the Company’s management determined that the requisite service period should be reduced from 10.7 to the 5 year service vesting period and estimates compensation costs of $3.8 million will be recorded in the second quarter.

On July 30, 2015, the Company approved amendments to the 2007 Option Plan to modify the vesting terms of all of the Tranche II and Tranche III options granted pursuant to the 2007 Option Plan. These time and performance vesting options will continue to vest based on a combination of time and performance vesting conditions. The time-based vesting condition did not change and will continue to be satisfied with respect to 20% of the shares underlying these options annually, based on the participant’s continued employment with the Company. The performance-based vesting condition was reduced to reflect changes in the food industry environment since the plan was adopted.

In addition, as part of the amendments to the 2007 Option Plan, the Company further evaluated its outstanding options and in light of the fact that certain grants of options (Tranche II and III options) have performance targets that may not be met before the expiration of such options, individuals holding these unvested time and performance-vesting options were allowed the right to exercise such options into restricted shares of the Company’s common stock and to receive a new grant of time and performance-vesting options to purchase shares of our common stock. On September 30, 2015, 3.73 million options were exchanged for 2.27 million restricted shares and 1.46 million new options. There were no new awards during the quarter. Subsequent to the quarter, the Company issued approximately 120,000 new option awards under the 2007 Option Plan. These awards are comprised of three equal portions exercisable for one-third of the grant with vesting consistent with past grants.

Based on management’s assessment of probability associated with the underlying conditions of the amended Tranche II and II awards, the Company believes that, following the amendments, there is a reasonable possibility that the performance targets could be met. Therefore, the Company engaged an unrelated specialist to assist in the process of determining the fair value based measure of the modified award. Based on management’s initial evaluation, the preliminary estimate of the possible future compensation expense is approximately $40 million. The expense will be recognized in the next four years when the Company concludes that it is probable that the performance metrics will be met.

The Performance Food Group Company 2015 Omnibus Incentive Plan (“the 2015 Incentive Plan”)

In July 2015, the Company approved the 2015 Incentive Plan. The 2015 Incentive Plan allows for the granting of awards to current employees, officers, directors, consultants, and advisors of the Company. Similar to the 2007 Option Plan, the 2015 Incentive Plan is designed to promote the long-term growth and profitability of the Company by providing employees and consultants who are or will be involved in the Company’s growth with an opportunity to acquire an ownership interest in the Company, thereby encouraging them to contribute to and participate in the success of the Company. The terms and conditions of awards granted under the 2015 Option Plan are determined by the Board of Directors.

There are 4,850,000 shares of common stock reserved for issuance under the 2015 Incentive Plan including non-qualified stock options and incentive stock options, stock appreciation rights, restricted shares, and other equity based or cash-based awards. In connection with the IPO, the Company granted approximately 144,000 options, 525,000 shares of time-vesting restricted stock, and 144,000 performance-vesting restricted stock to employees. In addition, the Company granted restricted stock units to certain directors. The compensation cost that has been charged against income for the Company’s 2015 Incentive Plan was $0.8 million for the quarter ended September 26, 2015 and is included within operating expenses in the consolidated statement of operations. Total unrecognized compensation cost for time vesting awards is estimated to be $14.3 million as of September 26, 2015.

Management is in the process of valuing and assessing the probability associated with the underlying conditions of the performance stock awards and in the process of determining the fair value based measure of the award. Depending on the terms of the awards, the expense will either be recognized over the respective service periods or be based on the timing of when the Company concludes that it is probable that the performance metrics will be met.